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04 Jul 11 Qualifying service and eligible foreign remuneration – Re a Taxpayer

The Administrative Appeals Tribunal has upheld a private ruling given by the Commissioner to a taxpayer in respect of the question whether a lump sum paid to the taxpayer under his income protection policy was properly included in his assessable income.

The taxpayer was employed by an Australian firm that provided project management services overseas. He was engaged on a three-year contract to act as a team leader on a project the company was managing in India. He returned home to Australia suddenly as a result of health problems and other circumstances. He had completed 274 days of his three-year contract by that point. He did not return to work in India or complete his service under the contract. He resigned formally from his role, and subsequently made a claim on his income protection policy on the basis that he was unable to return to work. That claim was accepted.

The taxpayer included the insurance payout in his assessable income but sought a private ruling to the effect that it was exempt under s 23AF ITAA 1936, which exempts from income tax "eligible foreign remuneration" derived by a person engaged on "qualifying service". He received a ruling to the effect that the amount was assessable income.

The Tribunal held that:

  • because the taxpayer had returned to Australia and did not return to his position overseas, he had ceased to engage in “qualifying service” for purposes of s 23AF(5), and
  • the payment was not derived by the taxpayer under a contract of service or a contract for service; it was made pursuant to a contract of insurance, and could not be said to be directly attributable to qualifying service. It could not be “eligible foreign remuneration” in those circumstances.

Re a Taxpayer and FCT [2011] AATA 462 (Administrative Appeals Tribunal, Senior Member B J McCabe, 30 June 2011).